May 7, 2020 / 3:22 PM / 22 days ago

UPDATE 1-Monte dei Paschi CEO says COVID-19 heightens need for fast solution for bank

(Recasts with comments after conference and press calls)

By Valentina Za and Stefano Bernabei

MILAN, May 7 (Reuters) - Monte dei Paschi CEO Marco Morelli on Thursday called on Italy’s government to quickly find a long-term solution for the state-owned bank as the coronavirus crisis adds to the challenges facing mid-sized lenders.

Morelli, 58, who is handing over the reins of the Tuscan lender to former Carige CEO Guido Bastianini after declining to serve another term, has presided over a painful restructuring following a 2017 rescue that handed the state a 68% stake.

Under the turnaround plan agreed with European competition authorities to clear the bailout, the Treasury must sell its stake by the end of next year.

Morelli said the current situation made it imperative to renegotiate the plan, which had long become outdated, and an extension of the deadline could be discussed, but Monte dei Paschi needed quick action.

“It would best not to wait for official deadlines, and look for a strategic solution as soon as possible,” Morelli said.

He said he hoped EU authorities would soon rule on a Treasury plan to cut Monte dei Paschi’s remaining problem loans, which would make it a more attractive merger partner.

Italy’s exit from Monte dei Paschi is widely seen as a possible trigger for mergers among second-tier banks, a process which Morelli said could not be postponed any further.

“Size matters,” he said. “Ours is a traditional banking market with too many players facing a period of low rates, low growth, limited access to funding markets, needs for investment.”

The COVID-19 crisis is expected to plunge the Italian economy in to its worst recession since World War II.

Top bank UniCredit on Wednesday posted a $3 billion euro loss following loan loss provisions stemming from its forecast of a 15% contraction in national output this year.

Loan writedowns worth 315 million euros, mostly linked to COVID-19, and other one-offs drove a 244 million euro ($263 million) first quarter loss at Monte dei Paschi, the bank said earlier on Thursday.

Net fee income was up on a yearly basis despite the disruption brought by the pandemic, thanks to good asset management flows at the start of 2020 and the repayment of sate-guaranteed loans on which the bank was paying a fee.

However, income from the traditional lending business was down by a fifth compared to a year earlier due to a downsizing of the loan book and the higher funding costs the bank had to shoulder to regain access to international bond markets.

Its transitional CET1 ratio, measuring the best-quality capital, fell to 13.6% in March from 14.7% in December.

Monte dei Paschi had posted a 1.2 billion euro loss in the fourth quarter due to new rules which forced it to write down the value of its deferred tax assets. ($1 = 0.9275 euros) (Reporting by Valentina Za; Editing by Kirsten Donovan)

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